The end of Uncertainty

French Feed-in tariff for wind : European Commission grants State Aid clearance

After almost two years of legal uncertainty, the European Commission approved the French feed-in tariff for onshore wind farms (“FIT”) as compatible with the European internal market.

This is a key development for the sector, since the European Commission has exclusive competence over assessing whether State Aid is compatible with the internal market, subject to review by European courts only.

As expected, the Commission’s investigation has shown that the FIT only compensates operators for the additional costs they face and that they do not receive overcompensation, in line with European guidelines on State Aid for the protection of the environment.

This decision rules out the risk of repayment of the aid in full, which is now limited to interest over the aid already received, i.e., interest over the difference between the FIT received prior to State Aid clearance and market prices.

This takes place in a context where the FIT is being challenged since 2009 before the Conseil d’Etat (France’s highest administrative court) by anti-wind farm association Vent de Colère !, on the basis that it would be illegal State Aid (i.e., aid that has not been notified to the European Commission prior to implementation).

In May 2012, the Conseil d’Etat requested a preliminary ruling from the European Court of Justice (“ECJ”) to determine whether the FIT was funded through state resources, in which case it would, in all likelihood, qualify as illegal State Aid.

On 19 December 2013, the ECJ confirmed that the FIT was indeed financed through State resources, which left very little doubt on the matter.

Anticipating the ECJ decision, the French Government formally notified the FIT for State Aid clearance in October 2013. It also asked EDF to sign power purchase agreements ahead of grid connection, to help secure financing for projects under development.

Now that State Aid clearance has been granted, the Conseil d’Etat  is expected to rule shortly on whether the FIT amounts to illegal State Aid (on the basis that it was not notified to the European Commission prior to its implementation), in which case it should cancel the Ministerial Order instituting the FIT.

Such cancellation will not, in itself, affect existing power purchase agreements but could prevent new ones from being signed until a new FIT Order is adopted (this could take a few months from cancellation). Alternatively, the Conseil d’Etat could delay the effectiveness of cancellation so as to give the French Government enough time to adopt a new FIT Order and ensure continuity of the FIT mechanism.

In any event, the French Government is widely expected to adopt a new FIT Order in the same terms as the existing one should it be cancelled, in line with the strong support to the current FIT mechanism it has consistently voiced over the past two years.

The Commission also announced today that it would open an investigation on discounts granted to energy intensive companies on the French surcharge financing the FIT (known as CSPE). This enquiry should not adversely impact the French wind market.

Undoubtedly, State Aid clearance of the FIT is a very positive development for the French renewable industry and is expected to boost investment in French wind farm projects and the sector generally.